4. Profit maximization and loss minimizationLagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not ableprice discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginalrevenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington.Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making aprofit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss,use the purple rectangle (diamond symbols) to shade in the area representing its loss.PRICE (Dotars per bottle)83.503002.502001.505.000.50•ATCas 1.0 1.520 2535QUANTITY (Thousands of bottles of beer)Price(Dollars per bottle)2.503.00MRGiven the earlier information, AdrianDComplete the following table to determine whether Adrian is correct.Quantity Demanded Total Revenue(Cans)(Dollars)40Monopoly OutcomeProfLossTotal Cost(Dollars)Profit(Dollars)correct in his assertion that Lagatt Green should charge $3.00 per bottle.Suppose that a technological innovation decreases Lagatt Green's costs so that it now faces the marginal cost (MC) and average total cost (ATC) givenon the following graph. Specifically, the technological innovation causes a decrease in average fixed costs, thereby lowering the ATC curve and movingthe MC curve.Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green ismaking a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is sufferinga loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. 4.00PRICE (Dolars per unit)3.503.002.502.001.500.500MO05ATC1.5MR1.020 2.5 30QUANTITY (Thousands of bottles of beer)25D40Monopoly OutcomeProfitLoss

Profit is maximised where marginal cost equates to marginal revenue.MC=MR, where to evaluate the…

4. Profit maximization and loss minimization Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. PRICE (Dotars per bottle) 4.00 3.50 100 2.50 200 1.50 1.00 0.50 a ATC MR 5 10 15 20 25 10 QUANTITY (Thousands of bottles of beer 40 Monopoly Outcome Prof Loss

4. Profit maximization and loss minimization Lagatt Green is a monopoly beer producer and distributor operating in the hypothetical economy of Lightington. Assume that Lagatt Green is not able price discriminate, and so it sells its beer to all customers at the same price per bottle. The following graph gives the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) curves that Lagatt Green faces for beer in Lightington. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for Lagatt Green. If Lagatt Green is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if Lagatt Green is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. PRICE (Dotars per bottle) 4.00 3.50 100 2.50 200 1.50 1.00 0.50 a ATC MR 5 10 15 20 25 10 QUANTITY (Thousands of bottles of beer 40 Monopoly Outcome Prof Loss

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.3P

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Similar questions

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Suppose the market for Hula Hoops is monopolized by a single firm. a. Draw the initial equilibrium for such a market. b. Now suppose the demand for Hula Hoops shifts outward slightly. Show that, in general (contrary to the competitive case), it will not be possible to predict the effect of this shift in demand on the market price of Hula Hoops. c. Consider three possible ways in which the price elasticity of demand might change as the demand curve shifts: It might increase, it might decrease, or it might stay the same. Consider also that marginal costs for the monopolist might be increasing, decreasing, or constant in the range where MR=MC Consequently, there are nine different combinations of types of demand shifts and marginal cost slope configurations. Analyze each of these to determine for which it is possible to make a definite prediction about the effect of the shift in demand on the price of Hula Hoops.